econ100
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Created by:
barikramer on December 10, 2011
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89 terms
Terms | Definitions |
|---|---|
 economics | the study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants |
| macroeconomics | the branch of economics that studies decision making for the economy as a whole |
| microeconomics | the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government |
| scarcity | the condition in which human wants are forever greater than the supply of time, goods, and resources |
| resources | the basic categories of inputs used to produce goods and services; also called factors of production, divided into 3 categories |
| land | a shorthand expression for any natural resource provided by nature |
| labor | the mental and physical capacity of workers to produce goods and services |
| entrepreneurship | the creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products |
| capital | the physical plants, machinery, and equipment used to produce other goods; human made goods that do not directly satisfy human wants |
| externality | a cost or benefit imposed on people other than the consumers and producers of a good or service |
| market economy | an economic system that answers the what, how, and for whom questions using prices determined by the interaction of the forces of supply and demand |
| adam smith | father of economics |
| laissez faire | allow to act |
| invisible hand | a phrase that expresses the belief that the best interests of a society are served when individual consumers and producers compete to achieve their own private interests |
| consumer sovereignty | the freedom of consumers to cast their dollar votes to buy or not to buy at prices determined in competitive markets |
| opportunity cost | the best alternative sacrificed for a chosen alternative |
| marginal analysis | an examination of the effects of additions to or subtractions from a current situation |
| production possibilities curve | a curve that shows the maximum combinations of two outputs an economy can produce in a given period of time with its available resources and technology |
| technology | the body of knowledge applied to how goods are produced |
| law of increasing opportunity costs | the principle that the opportunity cost increases as production of one output expands |
| price ceiling | a legally established maximum price a seller can charge |
| price floor | a legally established minimum price a seller can be paid |
| nominal income | the actual number of dollars received over a period of time |
| real income | the actual number of dollars received (nominal income) adjusted for changes in the CPI |
| public good | a good or service with two properties: (1) users collectively consume benefits, and (2) there is no way to bar people who do not pay (free riders) from consuming the good or service |
| market failure | a situation in which market equilibrium results in too few or too many resources used in the production of a good or service. This inefficiency may justify government intervention |
| normal profit | the minimum profit necessary to keep a firm in operation. a firm that earns normal profit earns total revenue equal to its total opportunity cost |
| business cycle | alternating periods of economic growth and contraction, which can be measured by changes in real GDP |
| peak | the phase in the business cycle in which real GDP reaches its maximum after rising during recovery |
| recession | a downturn in the business cycle during which real GDP declines, and the unemployment rate rises; also called a contraction |
| trough | the phase of the business cycle in which real GDP reaches its minimum after falling during a recession |
| recovery | an upturn in the business cycle during which real GDP rises; also called an expansion |
| economic growth | an expansion in national output measured by the annual percentage increased in a nation's real GDP |
| full employment | the situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates |
| GDP gap | the difference between actual real GDP and potential or full-employment real GDP |
| price system | a mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices |
| natural monopoly | an industry in which the long-run average cost of production declines throughout the entire market. as a result, a single firm can supply the entire market demand at a lower cost than two or more smaller firms |
| economic system | the organizations and methods used to determine what goods and services are produced, how they are produced, and for whom they are produced |
| traditional economy | a system that answers the What, How, and For Whom questions they way they always have been answered |
| command economy | a system that answers the What, How, and For Whom questions by central authority |
| capitalism | an economic system characterized by private ownership of resources and markets |
| socialism | an economic system characterized by government ownership of resources and centralized decision making |
| government expenditures | federal, state, and local government outlays for goods and services, including transfer payments |
| market | any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged |
| surplus | a market condition existing at any price where the quantity supplied is greater than the quantity demanded |
| shortage | a market condition existing at any price where the quantity supplied is less than the quantity demanded |
| equilibrium | a market condition that occurs at any price and quantity at which the quantity demanded and the quantity supplied are equal |
| law of demand | the principle that there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus |
| privatization | process of turning a government enterprise into a private enterprise |
| nationalization | act of transforming a private enterprise's assets into government ownership |
| poverty line | the level of income below which a person or a family is considered to be poor |
| in-kind transfers | government payments in the form of goods and services, rather than cash, including such government programs as food stamps, Medicaid, and housing |
| explicit costs | payments to nonowners of a firm for their resourcess |
| implicit costs | the opportunity costs of using resources owned by the firm |
| economic profit | total revenue minus explicit and implicit costs |
| marginal revenue product | the increase in a firm's total revenue resulting from hiring an additional unit of labor or other variable resource |
| demand curve or labor | a curve showing the different quantities of labor employers are willing to hire at different wage rates in a given time period, ceteris paribus. it is equal to the marginal revenue product of labor |
| human capital | the accumulation of education, training, experience, and health that enables a worker to enter an occupation and be productive |
| featherbedding | the union forces firms to hire more workers than are required or to impose work rules that reduce output per worker |
| monopoly | a market structure characterized by (1) a single seller, (2) a unique product, and (3) impossible entry into the market |
| wealth | the value of the stock of assets owned at some point in time |
| nominal interest rate | actual rate of interest earned over a period of time |
| real interest rate | the nominal rate of interest minus the inflation rate |
| proportional tax | a tax that charges the same percentage of income, regardless the size of income |
| vicious circle of poverty | the trap in which countries are poor because they cannot afford to save and invest, but they cannot save and invest because they are poor |
| infrastructure | capital goods usually provided by the government, including highways, bridges, waste and water systems, and airports |
| oligopoly | a market structure characterized by (1) few sellers, (2) either a homogenous or a differentiated product, and (3) difficult market entry |
| normative economics | an analysis based on value judgement |
| positive economics | an analysis limited to statements that are verifiable |
| benefits received principle | the concept that those who benefit from governemnt expenditures should pay the taxes that finance their benefits |
| ability to pay principle | the concept that those who have higher incomes can afford to pay a greater proportion of their income in taxes, regardless of benefits received |
| progressive tax | a tax that charges a higher percentage of income as income rises |
| average tax rate | the tax divided by the income |
| marginal tax rate | the fraction of additional income paid in taxes |
| regressive tax | a tax that charges a lower percentage of income as income rises |
| gross domestic product | the market value of all final goods and services produced in a nation during a period of time, usually a year |
| crowding out effect | a reduction in private-sector spending as a result of federal budget deficits financed by US Treasury borrowing |
| crowding in effect | an increase in private-sector spending as a result of federal budget deficits financed by US Treasury borrowing |
| aggregate supply curve | the curve that shows the level of real GDP produced at different possible price levels during a time period, ceteris paribus |
| classical economists | a group of economists whose theory dominated economic thinking from the 1770s to the great depression. they believed recessions would naturally cure themselves because the price system would automatically restore full employment |
| transactions demand for money | the stock of money people hold to pay everyday predictable expenses |
| precautionary demand for money | the stock of money people hold to pay unpredictable expenses |
| speculative demand for money | the stock of money people hold to take advantage of expected future changes in the price of bonds, stock, or other non money financial assets |
| discretionary fiscal policy | the deliberate use of changes in government spending or taxes to alter aggregate demand and stabilize the economy |
| spending multiplier | the change in aggregate demand (total spending) resulting from an initial change in any component of aggregate demand, including consumption, investment, government spending, and net exports. as a formula, the spending multiplier = 1/(1 - MPC) |
| keynesian range | the horizontal segment of the aggregate supply curve, which represents an economy in a severe recession |
| intermediate range | the rising segment of the aggregate supply curve, which represents an economy as it approaches full-employment output |
| classical range | the vertical segment of the aggregate supple curve, which represents an economy at full-employment output |
| M1 | the narrowest definition of the money supply. it includes currency, and checkable deposits |
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